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GFC II GFC2 New Global Financial Crisis Mark 2 Alert; Almost half of Australians believe world is on cusp of another financial crisis
Topic Started: 27 Jun 2011, 01:21 PM (14,292 Views)
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http://www.smh.com.au/business/markets/markets-tumble-as-investors-fear-gfc-ii-20110712-1hbu1.html

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Markets tumble as investors fear GFC II

Chris Zappone

July 12, 2011 - 4:04PM

The spike in fear roiling Australian shares has spread through Asian bourses, as investors grapple with the fear that Italy will be plunged into a debt crisis that would be felt throughout the banking world.

The plunges that have sent the S&P/ASX 200 nearly 2 per cent lower today have also triggered a 1.3 per cent fall on Japan’s Nikkei 225, which is trading down 132.4 points to 9937, while Hong Kong’s Hang Seng Index is down 2 per cent, or 444 points, to 21,903.

"Things in Europe just seem to be going from bad to worse; you get the feeling that authorities are merely trying to plug the holes in a sinking ship," said IG Markets strategist Ben Potter. "At the end of the day, they’re just delaying the inevitable.

"Until hard decisions are made and a long-term solution is found, these concerns are going to continue to derail global confidence, potentially for years to come."

"Now that Italy is the talking point, the whole situation has taken a nasty turn in terms of contagion,’’ said Mr Potter. ‘‘Whereas there wasn’t much US exposure to Greek debt, Italy is a completely different kettle of fish. The US exposure to Italy would be enormous compared to Greece, meaning this weighs on US banks as well."

Investors are worried that default by Italy could make institutional banks around the world afraid to lend to each other - in effect locking up global credit markets.

A sudden shortage of credit could squeeze Australian banks, which rely on global wholesale funds for borrowing.

A shortage of funds for local banks could push home prices lower, as neither banks nor borrowers would have enough access to the generous funding that helped drive home prices higher in recent years.

Platypus Asset Management Portfolio Manager Simon Bonouvrie said memories of a second leg to the global financial crisis have sent markets tumbling.

“The ultimate fear is a replay of the global financial crisis,’’ he said. “I don’t think it will get to that stage.

“It’s almost like the markets are bullying the central bank over in Europe to fix a problem,’’ he said.

Another analyst was more pessimistic about the fate of Europe’s shared currency, based on recent events overseas.

Hong Kong-based James Barnes of GaveKal Dragonomics compared the fate of the euro zone to the former Soviet Union.

"The coming three months are thus likely to be very important to the euro’s survival," he said. ‘‘Simply put, the market is increasingly indicating that it is losing patience with policymakers’ attempts at fudging answers.

‘‘[However] Europe’s policymakers may have little choice but to ‘fudge’ because the solutions to the euro dilemma are no more feasible than the solutions to fix the Soviet Union in 1990; when technocrats have built a system that cannot work, we perhaps should not be surprised when it implodes.’’

Westpac senior currency strategist Sean Callow said that in the event of a full blown credit crisis, many types of investments would be hit.

‘‘Interbank lending is certainly front and centre when credit dries up, with reverberations to every asset market,’’ he said. ‘‘Flight to safety means demand for (US) Treasuries and selling of just about everything else - equities, commodities, real estate.

‘‘Businesses would find it much harder to borrow, with implications for jobs,’’ he said.
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http://www.smh.com.au/business/we-have-nothing-to-fear-but-fear-of-another-crisis-itself-20110715-1hhq8.html

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We have nothing to fear but fear (of another crisis) itself

July 16, 2011

The crucial ingredient for the struggling Australian economy is confidence, writes Clancy Yeates.

If you imagined the mining boom would bring good cheer to households and businesses around the country, think again. Almost every day, it's becoming increasingly clear that for all our good fortune, Australians have a case of the economic blues.

On paper, we've arguably never had it better. Household wealth is near record highs, debt levels have been slashed and our unemployment rate of 4.9 per cent is the envy of the Western world.

But despite all this, the economy is suffering from a shortage of that intangible but crucial ingredient: confidence.

The causes for pessimism are plentiful and alarming. Fears of another financial crisis in the developed world are rising as Europe's debt woes threaten to engulf powers such as Italy and Spain.

As Italy's Finance Minister, Giulio Tremonti, colourfully put it this week: "Without balancing the budget, our debt, which is a monster that comes from our past, would devour the entire country."

Just to raise the alarm further, the world's biggest economy in the United States risks default if it can't raise its borrowing limit from $US14.3 trillion ($13.3 trillion) in the coming weeks. And that's before taking into account the furious domestic debate about a carbon tax.

The Treasurer, Wayne Swan, this week acknowledged the powerful impact the global jitters were having on consumers. ''We've seen significant uncertainty about events in Greece and other parts of Europe, as well as some sombre data that's come out of the US. So that's certainly a factor and of course we do have cautious consumers,'' he said.

The consumer gloom is already crimping spending and was blamed by David Jones this week for an unprecedented plunge in its profit, which sparked a sharemarket rout in retail and related industries.

Soggy business sentiment - near levels not seen since the wake of Lehman Brothers' collapse - also prompted NAB and JP Morgan to pull back their predictions on interest rates.

So how much further might Europe and the US sink into economic malaise? And what do these problems in the world's biggest developed economies mean for Australia's prospects?

After first surfacing for more than a year ago, the European Union's debt crisis this week plunged into dangerous waters.

No longer are ''peripheral'' euro members, such as Portugal, Ireland and Greece, the only ones in spotlight. Doubts are now engulfing Italy and Spain, Europe's third and fourth-biggest economies. Between them, Italy and Spain owe a staggering €2480 billion ($3277 billion). This is almost six times the €640 billion owed by Portugal, Ireland and Greece.

Any doubt about Italy and Spain's creditworthiness poses real questions about the very future of the euro currency area.

The latest wave of alarm has been driven by global bond markets - which wield the power to determine how much interest an indebted nation must pay. Traders this week zeroed in on Italy, the world's third-biggest market for sovereign debt, while pressure intensified on Spain.

Long-term yields on Italian debt rocketed on Tuesday to 6 per cent, a high not seen since 1999, sparking sharemarket falls across the world. For Portugal, Ireland and Greece - which have all required bail-outs - yields of much more than 7 per cent became a tipping point from which they have struggled to recover.

Italy has retained an AA- credit rating and Fitch Ratings this week confirmed its confidence in the nation. But Italy's sheer size, and the many foreign banks holding its bonds, pose a far greater to global financial stability than Greece does.

Citi's global chief economist, Willem Buiter, this week said it was clear contagion had spread beyond Greece, Ireland and Portugal into the heart of the region.

''We're talking a game changer here, a systemic crisis,'' he said. ''This is existential for the euro area and the EU.''

On top of the many euro-zone rescue packages already launched, Buiter estimates that rescuing Spain and Italy could cost a further €2 trillion.

With the stakes so high for the euro area, officials in crisis talks are under pressure to find another bail-out that can prevent financial disaster. But to do this, leaders face a seemingly intractable list of economic and political problems to overcome.

Despite months of negotiating, the region's politicians are at loggerheads over how best to contain the damage.

Europe's largest economies - Germany and France - want private investors to shoulder their share of the losses from investing in bonds. This presents a more palatable approach to their voters, who are effectively being asked to rescue the banks. But the European Central Bank says private investors should be protected from taking a ''haircut'' to avoid a fully fledged meltdown of the financial system.

Europe's finance ministers early this week failed to resolve the dispute despite the pleas of the Greek Prime Minister, George Papandreou.

"If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union," Mr Papandreou wrote in a letter to the Prime Minister of Luxembourg, Jean-Claude Juncker, who leads the group of euro-zone finance ministers.

"'Crunch time' has arrived, and there is no room for indecisiveness and errors," he said.

Alongside these political battles, it's questionable what the bail-outs announced so far have achieved. Many observers think default remains inevitable in the smaller economies that have been receiving harsh treatment by the bond markets and are caught in debt traps.

Morgan Stanley's Australian chief economist, Gerard Minack, says a default will be near impossible for the highly indebted peripheral economies to avoid. ''No country can afford to pay the sort of rates that the peripheral countries are now being asked to pay,'' Minack says.

A risk consultant and market commentator, Satyajit Das, describes the situation facing peripheral European governments as a ''vicious cycle''.

Writing on Naked Capitalism, a US website, Das says pressure from money markets and lenders has prompted deeper budget cuts, which only weaken their already fragile economies further.

This in turn can lead to more credit-rating downgrades and even more difficulties in accessing financing.

With Greece, Ireland and Spain depending on foreign markets for 60 per cent to 70 per cent of their funding, he says this makes it increasingly tough to service debts. Greece already spends 30 per cent of its tax revenue paying interest while Ireland, Portugal and Spain use 18, 14 and 10 per cent of their respective revenue, he says.

''The longer these economies stay weak, the more difficult and intractable the problem becomes,'' Das says. ''The governments become unable to adjust public finances rapidly enough to maintain funding access and market confidence. The spiral increasingly gets out of control, forcing a debt restructuring or default.''

Even if a default is avoided, the most indebted economies of Europe still face the bleak prospect of anaemic or no growth for years to come.

In Australia, a director of Deloitte Access Economics, Chris Richardson, says these countries drastically need to reduce their costs. But they can't do it through the usual method of allowing the currency to drop because they are trapped in the exchange rate and currency of the EU, he says.

''They are in real trouble because either they have years of grinding recession to push down their costs or they leave the euro zone, and there's no way that can happen that isn't ugly.''

Such a bleak scenario has long hung over the continent - but sovereign-debt fears have crossed the Atlantic to the US. Mired in a jobless recovery since the global financial crisis, the US now risks losing its top-grade, AAA credit rating if its political leaders cannot agree to raise the $US14.3 trillion debt ceiling by August 2.

Talks between Barack Obama and congressional leaders remained deadlocked as the deadline nears, and Moody's this week put the US credit rating on review for a possible downgrade.

The US Federal Reserve chairman, Ben Bernanke, this week underlined the catastrophic consequences for the global financial system if the US cannot raise the debt ceiling in time. He signalled the government would pay bond holders first, cutting social security and medical spending if necessary.

''The assumption is that as long as possible, the Treasury would want to try to make payments on the principal and interest to the government debt, because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy,'' Bernanke said.

Markets see US Treasury bonds as the safest asset in the world - so a default could have catastrophic consequences. ''The Treasury security is viewed as the safest and most liquid security in the world, and the notion it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system,'' Bernanke said.

Even if the US avoids a default, the anaemic pace of recovery remains a serious problem to which its leaders are yet to find a solution. Bernanke has not ruled out another round of printing money - known as ''quantitative easing''.

But in a sign of the uphill battle facing the US, the first two rounds of QE, as it's known, have so far failed to give growth a needed kick.

Whatever methods the US and Europe use to try to revive their economies, Australia is likely to feel at least some of the fallout.

The global gloom has already infiltrated the minds of consumers, with a Westpac consumer confidence this week showing pessimists outnumbered optimists by the widest gap in more than two years.

Westpac's chief economist, Bill Evans, said the ''surprisingly weak result'' appeared to be affected by the lingering crises overseas, alongside higher interest rates and the carbon tax.

David Jones's chief executive, Paul Zahra, revealed the damage this was doing with a shock profit downgrade that sent shares in the department-store group plunging up to 18 per cent on Thursday, sparking a sell-off in retail shares and other sectors such as media.

NAB's business survey this week also said conditions in retail had plunged to ''worrying'' levels not seen since the aftermath of the Lehman collapse in late 2008.

Beyond the erosion in confidence, however, direct impacts of the US and European debt crisis have yet to be felt. Morgan Stanley's Minack says banks here will inevitably experience some of the pain of a sovereign default, because of the interconnectedness of the global financial system.

''Greece is a basket case. Does that by itself mean a lot for Australia? No. The threshold for us is, does it go to Spain or Italy?'' Minack says. ''The financial sector is hugely exposed to a sovereign default, and at some stage that is inevitable,'' he says.

While Australia's lenders' exposure to Greece is minimal, the local banks have $US3.3 billion, or about $3.08 billion, exposure to Italy and $US4.2 billion to Spain, latest figures show.

Other commentators, however, think the euro's problems are an unlikely cause of a slump here.

Richardson from Deloitte Access Economics stresses that a slowdown in Australia is not going to be caused by weak consumer spending because investment is what's driving growth. A more dangerous scenario, he says, would be if big investors got jittery and began delaying some of the $76 billion the government is forecasting in business investment this financial year.

''We will know Australia has problems when China has problems and so far that's not true,'' he says, pointing to China's 9.5 per cent growth rate recorded this week.

''If board rooms give pause and say, 'Let's revisit that project in three to six months', then that's a problem for Australia, because our growth is completely a business investment play.''

Federal Labor, facing a drubbing in the polls, is also keen to talk up this good-news story of mining investment. For consumers, however, the idea of a mining boom sits awkwardly alongside the turmoil overseas and the constant talk of higher living costs.

A senior economist at JP Morgan, Helen Kevans, predicts pessimists will continue to outnumber optimists for the next few months. ''As long as these global issues stick around, I think in the near term we will see consumer confidence remain under that 100-point level,'' she says.

For things to improve, she says we'd need to see a speedy resolution of Europe's problems or a firm signal that interest rates are on hold - both unlikely prospects.

Indeed, Kevans says the constant speculation of interest-rate rises is probably the biggest reason consumers are so despondent. Tellingly, confidence among people with mortgages plunged by 16 per cent in July, almost double the average for all consumers.

In all the gloom, another trend that is apparently being overlooked is the strength in household wealth. Treasury figures this week showed wealth was at near a record high of $266,066 per person in the March quarter, up 0.2 per cent higher than a year ago.

The figures also showed private-sector debt was down 8.6 per cent on a year ago, despite a slight increase in the March quarter, as households and businesses paid down loans.

A CommSec economist, Savanth Sebastian, says the numbers underline the glaring gap between gloomy perceptions and reality.

"For most, the perception is that they are going backwards - the cost of living is rising, incomes aren't keeping up and wealth levels are stagnating,'' he says.

''But the reality is that incomes continue to grow at a faster pace than prices while balance sheets have improved and wealth levels are holding at record highs," Sebastian says.

Consumers, however, appear to be sticking with their stubbornly downbeat view of the economy for now. And this might be something that businesses and investors have to get used to.

For all the hand-wringing about weak spending and low confidence, Minack says this is exactly what the Reserve Bank has set out to achieve. Higher interest rates are the flipside of the mining boom, because they are needed put the brakes on spending and make way for the resources bonanza.

''What we've seen over the last 12 months is not an RBA miscalculation. As the mining boom continues, they will set policy so it feels like we are experiencing anaemic growth. That's what they want,'' Minack says.

Whether or not the developed world can dodge another global financial crisis, consumer gloom might be with us for a while yet
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Enjoy The Ride
9 Jul 2011, 12:38 AM
b-b riddle me this,why would a bank sell a risk free 10 yr to the FED? you are implying it is a zero sum game.







I've done my research. Thanks.

Banks sell 10-Y T's because they take a view. If yields rise (which was the overwhelming view when QE2) ended, they could bay them back at a lower price (higher yield). Bill Gross is now buying back now he realises he was hopelessly wrong on inflation.

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Also you should do your homework QE involved the purchase of Bonds, Mortgage Backed securities and Other financial instruments.

Yes. But it still does not add any new money to the system. When I referred to Bond purchases, I was referring to QE2.

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Normal OMO open market operations by a central bank are usually funded by asset sales, hence the central bank does not normally expand its balance sheet.

Normal MOM are designed to drained the financial system of excess reserves on deficit days, and add to financial reserves on surplus days. Without OMO, market level interest rates would be either 0, or +100%. I'm not really what point you were trying to make here.

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If you had any knowledge of the history of QE you would know it is designed to create inflation/ halt deflation.

I know what its designed to do. But it has failed. It failed because there is no money printing. It failed because those who implemented it do not know what they are doing because they do not understand MMT.

QE is an asset swap (bonds / cash) no more, no less. No one has any more or less money in their accounts as a consequence of QE.

In fact QE is actually restrictive monetary policy, since it robs the private sector of interest income. The fact we have not had
- better GDP growth or
- any meaningful inflation (other than speculative commodity prices) and
- higher input prices leading to margin sqeeze, which contracted the real economy.
means QE2 has now failed on its "designed" in the US and Japan. How many more examples do we need before people get the joke. For more read this
http://pragcap.com/the-qe3-conundrum





(S – I) + (T - G) + (M - X) = 0
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9 Jul 2011, 01:14 AM
Andrew, you say only new government spending can lead to inflation I believe this is wrong,
three points.
1) when the FED expands its balance sheet it buy's assets with longer maturities for liquid assets this brings available cash assets forward increasing liquidity. Where do the banks put this liquidity?





Enjoy The Ride!
Banks don't put it anywhere. Bank loans create deposits.

If they did try to spend it (say on gold), what does the seller of the gold do with the cash? Can put it in the bank, because that would create a private sector suplus..so it goes back to the Fed (eventually).

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2) QE as a policy intervention flattens the yield curve. This has resulted in the USD falling as there is no demand to buy US treasuries at close to zero return, QE trashes the currency hence the US is importing inflation.

No demand of UST's? Every Auction is 3x covered. Yields are at multi decade lows! In terms of QE trashing the currency, below are some facts
http://mikenormaneconomics.blogspot.com/2011/07/lets-end-money-printing-dollar-debasing.html

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3) The Howard Costello Government ran surpluses ie less spent than collected in taxation and I didn't see Australia suffer from deflation, quite the opposite if you look at the increase in property prices.

The private sector took over and ran up huge household debt (50% of GDP to 150% of GDP). The question now is how much more capacity do we have to keep this up if we go back into surplus.

Costello was the worst treasure in the history of Australia....
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B-b Carefull your regurgitation of MMT and Chartalism is sounding like faith not reason.
MMT, the old deficits don't matter because a government is always solvent brigade, who live in some mathematical theory that can explain how the world can live in utopia if only central banks/ government understand MMT.
Yeah great to discuss whilst having a latte penciling some figures on the back of a napkin, don't confuse it with the real world. Still just a theory.




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Enjoy The Ride!

The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”
― Friedrich A. von Hayek


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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Shadow
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mugshot
11 Jul 2011, 11:59 PM
Is the GFC 1 over?
GFC1 was great for most Australian homeowners... lower interest rates, government handouts, stronger currency, property boom.

Can't wait for the next one!
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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GFC 2.0 is where the Bulls become extinct :o
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http://www.smh.com.au/business/growth-slows-to-gfc-levels-survey-20110720-1hnxf.html

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Growth slows to GFC levels: survey

July 20, 2011 - 10:51AM

Economic growth rate has reached its lowest level since September 2009, when the world was still suffering from the effects of the financial crisis, a survey shows.

The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 1.6 per cent in May, below its long-term trend of 3.0 per cent.

Westpac chief economist Bill Evans said the index had steadily fallen from a peak of 9.5 per cent in March 2010 and had now reached its lowest level since September 2009.

Westpac is expecting growth momentum in the economy in the second half of 2011 at an annualised pace of around 2.5 per cent, he said.

‘‘Key aspects of that growth profile are expected to be weak growth in consumer spending as the cautious consumer seeks to further raise savings rates, ongoing weakness in residential and non residential building,’’ Mr Evans said.

There may also be some correction to the investment plans of firms servicing the non-mining sectors in response to the subdued outlook for sales, Mr Evans said.

‘‘Mining investment will remain a strong offset to these forces.’’

The Westpac-Melbourne Institute index of coincident growth, measuring the pace of current growth in the economy, sank 0.3 percentage points in May to 264.9, showing an annualised negative 0.1 per cent fall - marking the first contraction in the reading since November 1991.

‘‘The very low reading of the coincident index is mainly driven by the large decline in real GDP in the March quarter,’’ Mr Evans said. The coincident growth was well below the long-term trend of 2.8 per cent.

The Reserve Bank in its July meeting minutes, which were released yesterday, pointed out that the multi-speed nature of the economy has been clearly evident in recent economic data.

‘‘The resources sector remained strong, as did some service sectors. However, household cautiousness and the high exchange rate were having a dampening effect on a number of other sectors,’’ the cental bank said.

A slew of readings point to slow growth in the domestic economic with retail sales down, consumer confidence falling back to May 2009 levels, and worries about house prices weighing on household’s spending decisions.
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http://www.stuff.co.nz/business/opinion/5397348/Is-this-GFC-Part-Two

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Is this GFC Part Two?

PATTRICK SMELLIE

CRISIS FEARS: An overnight meltdown of the world's financial markets has sparked talk of a Global Financial Crisis: Part 2.

OPINION: The last 30 years have been littered with world changing events: the fall of the Berlin Wall and the 9/11 attacks are two.

As was the devastating collapse of US banking giant Lehman Brothers in late 2008, when it looked briefly as if the global financial system could unravel.

This morning, after a dramatic overnight plunge across the developed world in stocks and currencies and a massive rally in bond rates, the question is being asked: is this one of those events?

Just as the dust was clearing from the pantomime in Washington DC shenanigans over the US debt ceiling, global financial markets have whipped attention back to the equally intractable European debt mountain.

"We are seeing a widespread crisis of confidence. Central banks have lost their credibility," the Financial Times reports this morning from Ed Yardeni, a former US Federal Reserve staff member and American investment fund manager.

But is this a moment in history, or just another step along a journey that's been all too clear since the global financial crisis hit: that is, the creeping crisis that is overtaking the world's richest and still most powerful economies, and accelerating the shift of geo-political wealth and power from West to East.

The Berlin Wall only fell after years of visible economic sclerosis weakened the USSR to the point where it could no longer afford to project its power. Glasnost and perestroika had been under way for years before the Berlin Wall fell.

Likewise, the extremist hatred that led to the moment of the Twin Towers attack followed a generation of American foreign policy that pursued self-interest in the way that only a superpower can do.

Like it or not, President Barack Obama's America no longer looks nor feels like a superpower.

Meanwhile the economies of Europe and Japan - the other two great nodes of industrialised world wealth - remain mired in debt, slow growth and internal dysfunction.

These are the mega-trends that underpin days like today, when markets plunge and all around are the cries of traders yelling: "the sky is falling, sell sky."

Today's global market plunge may or may not be apocalyptic.

Time will tell. Most likely, it will be just another lurch into the abyss that the wit of Western-style democracies are so struggling to manage.

Amazingly, New Zealand's story is not so bad.

Government finances are sound, albeit the private sector owes far too much overseas.
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The exchange rate is still too high for exporters, despite the rapid falls of recent days, but it does reflect the country's rapid reorientation to the economies of the future, all of which are on our doorstep in the Asia-Pacific region.

We can do very little to change what goes on in the wider world, but we can build on the strengths we can see, the luck of being in an area of growing geographic relevance.

It means that we, along with the Australians, are going to be decoupling from our traditional economic allies, and that's already feeling uncomfortable, as the simmering resentment about foreign, particularly Asian, investment here.

But with the old order looking so weak, now might be a good time to take that call from the Chinese Embassy for a cup of green tea and a chat about the future - and for Reserve Bank governor Alan Bollard to keep his pedal off the interest pedal for good measure.
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http://www.smh.com.au/business/world-financial-woes-truly-scary-howard-20110805-1ies7.html

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World financial woes 'truly scary': Howard

Daniel Hurst

August 5, 2011 - 2:16PM

Australians' optimism about the strength of the economy is fraying amid growing fears over another global downturn, according to former prime minister John Howard.

The Reserve Bank of Australia today slashed its growth forecasts while investors wiped as much as $60 billion off the sharemarket as mounting concerns over a financial crisis spooked traders around the world.

Addressing a finance industry conference on the Gold Coast today, Mr Howard said there were fears overseas that the worst of the global downturn was not over and a “second trauma” was imminent.

The former Liberal prime minister, whose 12-year hold on the top job ended with an election loss in 2007, said he was relatively optimistic but the fears were impacting on confidence.

“It's fair to say that compared with most other countries around the world ... Australia is still doing well by comparison and there is still a sense of optimism in many parts of Australia that one doesn't find in the United States and that one certainly doesn't find in many countries in Europe,” he said.

“But it's an optimism that is starting to fray and dwindle.”

Mr Howard said three factors were contributing to the growing pessimism – the sense that economic reform had stalled, the uncertainty surrounding the nation's hung parliament and the world economic woes.

He said Europeans and Americans had gone through the global financial crisis, which mostly affected North Atlantic countries, and people had thought the worst of it was over.

“I think we have a growing feeling in Europe in particular that the worst is not behind them and maybe there is going to be a second trauma, of a different kind,” he said.

Mr Howard said a sovereign debt trauma was a worry and the prospect of Italy defaulting was “truly scary”.

“There is a sense there could be a dip. I am rather more optimistic about that than many critics [but the issue was eroding confidence],” he said.

Mr Howard noted that people were increasingly saving rather than spending, which affected the retail industry.

The US economy was flexible, but unemployment remained stubbornly high and many Americans felt the country's recession had not yet lifted, he said.

“The fundamentals of the Australian economy are still better than the fundamentals of others and we shouldn't be so consumed by a sense of pessimism to ignore that fact,” Mr Howard said.

“One of the reasons [confidence] is beginning to erode is we have lost the reform energy that we had over a 25-year period.”

In a reference to the politically fraught topic of industrial relations, Mr Howard said regulation of the labour market had taken the nation backwards.

He stressed the importance of China to Australia's economy, saying Australia must remain a “dependable and reliable supplier” of resources into the future.

Mr Howard made the remarks during a keynote speech to the three-day Financial Services Council annual conference, where he also backed Tony Abbott's opposition to the carbon tax.

The former prime minister did not speak to media as he left the Gold Coast Convention and Exhibition Centre this afternoon.
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Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

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